The automaker currently uses nickel-metal hydride batteries in its flagship Prius and other hybrid vehicles but is now set to shift to lithium-ion batteries to boost fuel economy and allow it to produce smaller vehicles, the sources said.

Toyota’s battery unit, Primearth EV Energy Co., based in Kosai, Shizuoka Prefecture, will spend about ¥20 billion to build a new line at its plant there, which will be capable of producing enough lithium-ion batteries for 200,000 vehicles a year, the sources said. Primearth is currently producing 36,000 lithium-ion batteries a year at its plant in Toyota, Aichi Prefecture.

Toyota is also mulling installing the batteries in its new Prius, which is expected to go on sale around 2015, the sources said.